On 19 July 2019, China submitted its proposal on investor-state dispute settlement (ISDS) reform to UNCITRAL. A Chinese version is available, though an English translation is yet to be posted. China reaffirms its commitment to ISDS as an important mechanism for resolving investor-state disputes under public international law. However, it takes note of significant criticisms of ISDS and suggests various pathways for reform including, most notably, supporting the study of a permanent appellate body. In combination with the European Union’s “open architecture” approach, where the EU has signalled that it is open to working with other states that might wish to sign onto an appellate body and/or the multilateral investment court, this means that two of the world’s three biggest economies have now signalled support for significant reform of ISDS, including the possible creation of a permanent appellate body.
China’s UNCITRAL submission
China began in the investment treaty system as an ISDS sceptic but, over the years, has become an ISDS convert. In this submission, China starts from the position that ISDS plays an important role in protecting the rights of foreign investors and promoting cross-border investment, as well as helping to build the rule of law in investment governance and avoiding economic disputes between investors and states escalating into political battles. Given this, China affirms its belief that ISDS is overall a mechanism that is worth maintaining. Given China’s growing interests as a capital exporter, particularly along the Belt and Road route, this endorsement of ISDS should not come as a surprise and is in line with the evolution of China’s treaty practice toward embracing ISDS over a full range of disputes.
Despite this general affirmation, China recognizes that there have been significant criticisms made of ISDS that need to be addressed. These include that: the current system lacks an institutionalized and reasonable error-correcting mechanism; the current system of ad hoc awards lacks stability and predictability; the professionalism and independence of arbitrators has been put into question; third party funding is affecting the balance of parties’ rights; and investment arbitration proceedings are long and costly. Of note, China also states that the phenomenon that the arbitrators and lawyers of investment arbitration are limited to a few experts deserves special attention. China states that ISDS should be more open and inclusive with increased participation of experts from developing countries. Read the rest of this entry…